by Bill Singer
In a Financial Industry Regulatory Authority (“FINRA”) Arbitration Statement of Claim filed in December 2010, Claimants Houston and Let asserted various causes of action, including, breach of fiduciary duty; breach of contract; negligence; and, fraud relating to investments in:
- Claymore Securities Strategic Income Portfolio Series 17;
- Calamos Global Dynamic Income Fund;
- Evergreen Global Dividend Opportunity Fund;
- Capital World Growth & Income Fund; and
- New World Fund.
Claimants sought at least $154,000 in damages plus punitive damages, interest, costs, and fees. In the Matter of the FINRA Arbitration Between Debbie Houston and Laura Lett, Claimants, vs. Wells Fargo Advisors, LLC, Respondent (FINRA Arbitration 10-05826, December 1, 2011).
Respondent generally denied the allegations, asserted various affirmative defenses, and requested the expungement of all references to this arbitration from the Central Registration Depository records (“CRD”) of non-party Anthony Conticelli.
Decision
The FINRA Arbitration Panel found Respondent Wells FargoAdvisors liable and ordered it to pay to Claimants $130,000.00 in compensatory damages, prejudgment interest specifically denied. Also, Respondent was ordered to reimburse Claimants the $300.00 non-refundable portion of their filing fee. The requested expungement of Conticelli’s CRD was denied.
It Is But Not Really
Given the somewhat odd nature of the FINRA Arbitration Panel’s findings, I’m going to let the arbitrators speak for themselves:
The Panel finds that this account consisted of funds that belonged to Ms. Lett; that her daughter’s name was on the account for convenience only; that Ms. Lett had no other assets; that her interests were that the funds reasonably last the remainder of her life to pay for her care; that maintaining the principal balance in the account for the benefit of her heirs was a secondary interest at best; and, that her registered representative lost sight of these crucial facts in choosing high-return securities for the account, with their attendant risk. Consequently, the Panel finds in favor of Claimants on the issues of unsuitability of the investment portfolio and the issue of Respondent’s failure to supervise its financial advisor, Anthony Conticelli.
Bill Singer’s Comment
This is one of those cases that I published not because it presents a fascinating fact pattern, dramatic legal issues, or even involves an important decision — to the contrary, there’s nothing particularly interesting or extraordinary about this case, with the exception of the truly oddball FINRA Arbitration Panel comment quoted above.
What exactly does the Decision tell us about the facts behind this case?
For starters, we have two Claimants: Houston (the daughter) and Lett (the mother). The two women seem to be complaining about their broker’s recommendations of funds that allegedly resulted in some $150,000 in losses.
We can infer from the Panel’s quote that there was some joint account on which both women’s names were indicated as titleholders; however, the Panel determined that the daughter’s name was added only for “convenience.”
Wow — that’s quite a determination.
If you follow the implication, the Panel seems to be saying that this isn’t really, really a joint account but only an individual account for Claimant Lett. Further, the Panel characterizes the account as containing all of Lett’s assets and that her investment plan seemed to have been to arrange for those assets “to last the remainder of her life to pay for her care,” and that “maintaining the principal balance in the account for the benefit of her heirs was a secondary interest at best.”
Huh?
Two adults open a brokerage account in their joint names — at least I think the daughter is an adult but that fact is not stated in the Decision. Also, it might have been helpful if the Decision informed us whether this was a Joint Tenants With Rights of Survivorship account or some other form of common tenancy. Notwithstanding, this Panel determined that we should sort of disregard that legal fact of the multiple account holders because this account was only undertaken as a convenience for the mother. Yeah, it’s a joint account but not really because it’s a joint account only as a convenience for the mother and, you know, we should sort of disregard the daughter’s name on the account. Oh, I see: If my aunt were a man, she’d be my uncle.
Okay, so, lemme ask you a question, hypothetically, the daughter predeceases the mother and the daughter’s children or spouse (not sure if she had them because the Decision doesn’t offer that nugget) start a lawsuit to get their “share” of the assets in the joint account — or sue because of the “unsuitability” of the investment choices for the deceased daughter. What if the Respondent brokerage firm were Merrill Lynch or Morgan Stanley — or some small independent firm? What if the investments were deemed in this hypothetical case to be suitable for the daughter — even if not for the mother? Would another FINRA Arbitration Panel find that this joint account was really a single individual’s account or that the recommendations were unsuitable for both account holders? If you at least answer “not sure,” then that’s already a problem.
And another thing, how nice for the Panel to inform us that the mother’s account objective of “maintaining the principal balance in the account for the benefit of her heirs was a secondary interest at best.” So, this whole issue about the mother’s concern for her heirs wasn’t totally without merit — no, it was apparently discussed or considered, albeit as a secondary interest. Which, of course, means that it was of some interest to the mother, even if only secondary. Which, moreover, means that Conticelli and Respondent Wells Fargo likely needed to at least take that concern into account. I mean, c’mon, either benefiting her heirs was “a” concern of the mother’s or it wasn’t — and if the Panel concludes that it was a secondary interest, then the Panel needs to come to grips with the fact that a secondary consideration is still “a” consideration.
All of which sets up the most troubling aspect of this Decision: The Panel’s finding that non-party Conticelli “lost sight of these crucial facts in choosing high-return securities for the account, with their attendant risk.”
Lost sight of what “crucial facts?” The fact that a mother and daughter opened a joint account? The fact that the joint account wasn’t a joint account but an individual account despite the fact that it was a joint account and not an individual one? The fact that the mother may have wanted to ensure some causa mortis transfer of assets to her heirs? Lose sight of those facts? Hell, I’m having trouble even focusing in on them.
Then there’s the other issue as to why the five funds at issue, essentially income/dividend/growth funds, were specifically “unsuitable” for this joint mother and daughter account?
Now, please, don’t misunderstand me. I am NOT suggesting that the five recommended funds were suitable. Fact is, they may well not have been. Unfortunately, I have no basis for reaching that conclusion because none is presented in the Decision.
If the FINRA Arbitrators had made the effort, they could have easily tossed in a few sentences explaining the profile of each disputed fund, compared the stated funds’ objectives to the status of the Claimants, and then explain why each fund was “unsuitable.” Confronted with such rationale, I might well be in a position to concur with the Panel; however, since no such explanations were offered, I can’t understand the basis for the rulings.
A Worthwhile Investment: Professional Advice
Self-help estate planning is often disastrous. Simply opening up a joint account with a desired beneficiary and expecting to skirt probate and save on estate taxes may be your goal but such amateur-hour efforts are often thwarted by unexpected developments or misunderstood laws. An hour or so with an estate planning lawyer and an accountant might have prevented much of the mess that Claimants found themselves in. Given that they allegedly incurred over $150,000 in losses, a thousand or so dollars spent on professional estate planning would have been a more cost-effective approach. Of course, for all we know, the Claimants may have paid for such advice and, notwithstanding, wound up in this mess solely as a result of the Respondent’s failure to supervise — still, you know, it would’ve been nice for the Decision to so educate us.
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